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Anyone who owns a health savings account is probably familiar with its generous tax advantages. If you’re nearing age 65, though, it’s worth making sure you’re aware of some key rules.
HSAs come with a triple tax benefit: Your contributions are made pre-tax, any growth is untaxed and withdrawals are tax-free as long as they are used for qualifying medical expenses. And while these accounts are more prevalent among younger generations, a growing number of people are reaching retirement with one in tow.
“More retirees are sitting on meaningful HSA balances without a clear plan for how to use them most effectively,” said certified financial planner Tom Geoghegan, founder of Beacon Hill Private Wealth in Summit, New Jersey.
Assets are highest in the 60-to-64 age group
Since HSAs were authorized in 2003 congressional legislation, their use has steadily climbed over the years, according to research from Devenir, an HSA provider. By the end of 2024, assets were $147 billion across about 39 million accounts — a year-over-year increase of 19% for assets and 5% for the number of accounts.
HSA assets are highest among people ages 60 to 64, with $19.4 billion across 3.1 million accounts, according to Devenir. That’s followed by the 55-to-59 age range, with $17 billion in about 3.5 million accounts.
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At the same time, however, the number of HSAs is highest among younger age groups, with about 5.8 million among those ages 30 to 34 and about 5.3 million in the 35-to-39 age group. Assets in those accounts stand at $10.2 billion and $12.6 billion, respectively.
The use of HSAs is expected to keep increasing. The “big beautiful bill” that was enacted in July included provisions to expand access to HSAs, including by making more Affordable Care Act marketplace health plans HSA-eligible.
‘No statute of limitations’ to repay yourself
You can only contribute to an HSA if you have a qualifying high-deductible health insurance plan. This year, the contribution limit is $4,300 for individuals and $8,550 for family coverage. In 2026, those limits will increase to $4,400 and $8,750, respectively. If you’re age 55 or older and not enrolled in Medicare, you’re allowed to contribute an additional $1,000 yearly.
While most HSA owners tend to spend the money in their account as they incur medical expenses, the share who invest their funds has continued to rise, according to Devenir. At the end of 2024, about 3.5 million HSAs — or about 9% of all open accounts — had invested a portion of their HSA money.
If you can use non-HSA money to cover immediate health care needs, you can leave the money in the HSA as long as you want to.
“There’s no statute of limitations on reimbursements for your medical expenses,” said Ntina Skoteiniadis, a wealth manager with Sheets Smith Wealth Management in Winston-Salem, North Carolina. The firm is ranked No. 35 on CNBC’s Financial Advisor 100 list this year.
And as long as you hold on to receipts from your medical expenses, you can reimburse yourself in future years.
“You can [withdraw] the money tax-free and penalty-free, even if the expenses were from a long time ago,” Skoteiniadis said.
In retirement, that can be especially useful when it comes to tax planning, Geoghegan said.
“This gives retirees more control over their taxable income in high-income years or when coordinating with Roth conversions,” he said.
Throwing Medicare into the mix
One of the most important aspects to know about HSAs as you approach age 65 involves Medicare.
That’s the age when you become eligible for coverage. However, you cannot contribute to an HSA when you’re on Medicare, even if only Part A (hospital coverage). And, because your Medicare coverage may be retroactive by six months depending on when in particular you enroll — even if you delay enrolling because you have qualifying health insurance elsewhere — it’s important to make sure you don’t contribute during that stretch.
“Stop contributing to your HSA account six months before your Medicare start date,” Skoteiniadis said.
While you can’t make HSA contributions while on Medicare, you are permitted to use those funds to cover your premiums for Medicare Part B (outpatient care), Part D (prescription drug coverage) as well as Advantage Plan premiums. However, you cannot use it for Medigap premiums, Skoteiniadis said.
And, of course, those HSA funds can continue being withdrawn, tax free, as long as they’re used to cover qualifying medical expenses, whether current or in the past.
Say goodbye to the 20% tax penalty
At age 65, you’re allowed to use the HSA money for non-medical expenses — but those withdrawals would lose their tax-free treatment.
“You can use it for other retirement costs, but you have to pay taxes on the withdrawal if it’s not for health care expenses,” said CFP Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida.
The difference is that you won’t be charged a 20% tax penalty, which applies to withdrawals before age 65 that go toward expenses that are not health-care-related.
If you do spend the money for expenses outside of health care, it will be taxed at ordinary income tax rates.
Estate planning considerations
If the beneficiary of your HSA is your spouse, the account gets passed on at your death and is not a taxable event.
However, that’s the not the case if you leave the account to a non-spouse.
“When your spouse is your beneficiary, the HSA simply becomes theirs and they can continue using it for qualified medical expenses,” Skoteiniadis said. “But if someone else inherits it, it stops being an HSA and it’s just taxable income.”
In that case, the beneficiary must withdraw all money in the HSA in the year of your death, and it will be subject to income tax, she said. The exception to this is if you use any of the money to pay for medical expenses of the deceased within one year, that amount will not be taxed.
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